The leading index decreased in July, the third consecutive decline based on newly available data. The growth of CPI for services (inverted) and stock prices were the major negative contributors in July. From January to July the leading index declined 0.3 percent (a -0.6 percent annual rate). In addition, the strengths among the leading indicators have become less widespread in recent months, but strengths and weaknesses still remain somewhat balanced.
The coincident index increased sharply again in July, and has been on a steady upward trend in recent months. At the same time, real GDP grew at a 3.6 percent annual rate in the second quarter of 2006, following a 2.7 percent annual rate in the first quarter. Following large monthly gains from November to January 2006, the leading index has moderated in recent months. The behavior of the leading index so far suggests that economic growth is likely to continue, but at a slow to moderate rate, in the near term.
LEADING INDICATORS. Four of the eight components in the leading index increased in July. The positive contributors to the leading index — in order from the largest positive contributor to the smallest — are new residential construction orders, new orders in investment goods industries, stock prices, and inventory change series*. Negative contributors — in order from largest to smallest — are the growth rate of CPI for services, consumer confidence, yield spread, and gross enterprises and properties income*.
With the 0.1 percent decrease in July, the leading index now stands at 106.1 (1990=100). Based on revised data, this index declined 0.2 percent in June and declined 0.2 percent in May. During the six-month span through July, the leading index decreased 0.3 percent, with four of the eight components increasing (diffusion index, six-month span equals 56.3 percent).
COINCIDENT INDICATORS. All four components that make up the coincident index increased in July. The positive contributors to the coincident index were industrial production, manufacturing sales, employed persons, and retail trade.
With the 0.4 percent increase in July, the coincident index now stands at 106.5 (1990=100). Based on revised data, this index increased 0.3 percent in June and increased 0.4 percent in May. During the six-month period through July, the coincident index increased 1.2 percent, with all four components increasing (diffusion index, six-month span equals 100.0 percent).
